Updated with correction
Western Europe's asset management industry grew at slower pace in 2018, with a 0.2% increase in net new inflows and assets falling 5% to €20 trillion ($22 trillion) from €21 trillion in 2017, according to a report by management consultant McKinsey & Co.
The region's decline in assets under management was caused by poor market performance stemming from an uncertain macroeconomic environment, the report said. By comparison, global AUM fell 1%.
According to the report, "The state of the European asset management industry," Europe accounted for 7% of the $1.6 trillion in global inflows for 2018. The region had a 28.8% share of global flows from 2014 to 2018.
Meanwhile, profits margins for Europe's asset management industry in 2018 fell slightly to 12.3% on a 2% drop in net revenue margins.
So far in 2019, European AUM has already reached €22 trillion, McKinsey & Co. estimates, expecting assets to recover and ultimately see a 3% increase.
The report said about 27% of Western Europe financial assets were managed by external managers.
While Europe has seen a relatively lower degree of "barbelling" — an investment strategy that incorporates the use of short- and long-term bonds and/or stable and speculative stocks — of investor behaviors in terms of asset mix, that could change amid sustained demand for yield-generating assets and the consistently growing share of passive strategies, the report said.
The consultant also noted the visible impact of Markets in Financial Instruments Directive II on the sector, including asset distributors narrowing manager buy lists, and raising the bar on performance as well as the fragmentation of research with large managers driving a 20% to 30% reduction in broker research spending.